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The Bank of Canada has announced that it will be "scaling down" its work on retail central bank digital currency (CBDC) while it attends to more pressing payment systems issues.

Last week, Canada’s central bank issued its most sceptical statement to date on retail CBDC, indicating that the bank’s interest in the new technology is fading.

In an updated  on a digital Canadian dollar, the bank wrote that it has “completed” its research into retail CBDC and will now turn to other priorities.

“With other payments issues gaining prominence, the bank is scaling down its work on a retail CBDC and shifting its focus to broader payments system research and policy development,” it said.

Going forward, the bank said it will focus on “major developments” that will affect Canada’s payments landscape.

For example, a new mandate for the bank to oversee non-bank retail payment service providers (PSPs) will come into force by the end of 2024.

Under the , first enacted in 2021, PSPs are required to register with the Bank of Canada to allow for greater oversight and ensure safer services.

As per  that were finalised in November 2023, the central bank’s supervisory role for PSPs will focus on two key areas: safeguarding end-user funds; and ensuring operational risk management.

Instant payments … eventually

The RPAA aims to complement Payments Canada’s work on modernising Canada’s payments system; this work includes the launch of a forthcoming instant payments system, the Real-Time Rail (RTR).

The Bank of Canada, which is both a member and a regulator of Payments Canada, noted that work on the RTR will be one of its priority areas going forward. However, it did not mention that the RTR is now seven years behind schedule.

In April, as covered by 91����ԭ��, Payments Canada  that the RTR will not be ready until 2026 at the earliest.

Initially launched in 2016 with a delivery date of 2019, the RTR project has been fraught with delays and has been pushed back several times.

In its most recent update, Payments Canada described the RTR as a “complex, large-scale, multi-year” infrastructure project that includes two key technical components.

The first is the RTR exchange, which allows for real-time exchange of payment messages 24/7/365, using ISO 20022. This component was built by Interac, the Canadian interbank network, and was completed in June 2023.

The second component is the real-time clearing and settlement system, which is still under construction.

Vocalink, a subsidiary of Mastercard, was initially contracted to provide the clearing and settlement infrastructure, with TCS Canada, a managed IT services provider, as its integration lead.

However, in its latest update on the RTR, Payments Canada made no mention of Vocalink or TCS Canada, and instead welcomed IBM Canada and CGI as new partners to the project.

From Australia to Colombia, central banks go cold on retail CBDC

The Bank of Canada’s comments on retail CBDC echo those of the Reserve Bank of Australia (RBA) in its latest report on the technology.

Last month, as covered by 91����ԭ��, the RBA said it sees “no clear public interest case” to issue a retail CBDC at present.

“Australians are currently well served by a retail payments system that, by global standards, is efficient, innovative and safe,” it said.

However, like the Bank of Canada, the RBA said it has made no final decision on retail CBDC as yet, and will continue to consider the technology and follow other jurisdictions’ use of it.

In July, the Bank of the Republic of Colombia also published a  in which it said that there are “not sufficient reasons for the issuance of retail or wholesale CBDC in Colombia”.

The scepticism adds to that of other central banks, including the Swiss National Bank (SNB), whose outgoing governor Thomas Jordan said that there is “no need” for retail CBDC and that its risks “outweigh its potential benefits”.

Nonetheless, supranational bodies such as the International Monetary Fund (IMF) remain strongly supportive of retail CBDC experimentation, development and issuance.

Last week, the IMF published two papers on CBDC:  considers how jurisdictions that issue CBDCs can ensure that the technology is adopted by end-users, following its low take-up in jurisdictions such as Nigeria.

Forming part of the IMF’s CBDC Virtual Handbook, the paper encourages policymakers to consider CBDC adoption early on, by arguing that successful CBDC adoption hinges on “technical readiness”, “operational robustness” and “strategic policy and design choices”.

The IMF’s  argues that retail CBDC can unlock financial inclusion benefits in emerging and low-income countries.

“If properly designed to address the barriers to financial inclusion, CBDCs have the opportunity to gain acceptance by the financially excluded for digital payments,” it said.

“CBDC can then serve as an entry point to the broader formal financial system.”